CMA Tells Homebuilders to Stop Onerous Ground Rent Terms

The U.K. competition watchdog has told two of the U.K.’s biggest homebuilders to remove contract terms that leave residents with spiraling costs.

The Competition and Markets Authority has written to Countryside Properties Plc and Taylor Wimpey Plc that terms which double a fee called ground rent for leaseholders every ten or fifteen years must be removed from all existing contracts. The companies must also agree not to use those terms in any future contracts, the watchdog said in a statement on Friday.

“These ground rent terms can make it impossible for people to sell or get a mortgage on their homes, meaning they find themselves trapped. This is unacceptable,” said Andrea Coscelli, chief executive officer of the CMA. “If these developers do not address our concerns, we will take further action, including through the courts, if necessary.”

The findings come after the CMA launched enforcement action against four housing developers in September last year over the possibility of their using unfair contract terms, and mis-selling homes to leaseholders. The watchdog’s investigation into the other two homebuilders, Barratt Developments Plc and Persimmon Plc, is still ongoing.

The U.K. has moved to crackdown in recent months on the use of ground rents, an annual sum which buyers pay to the owner of the land on which the property stands. In some cases, home buyers have then been unable to sell once they found out the fee doubled every decade. In January, the government announced that they would give 4.5 million people the ability to effectively cancel the fees on homes as part of an overhaul of the leasehold system.

Taylor Wimpey said in an emailed statement that “we will continue to cooperate with the CMA and work with them to find a satisfactory resolution, within the required timescale.” Taylor Wimpey had already previously set aside 130 million pounds ($181 million) to renegotiate the terms of ground rents for home buyers whose freeholds had been sold on to third parties with onerous terms, so the CMA’s push may have little impact on profit according to Bloomberg Intelligence.

Countryside said they haven’t sold properties with doubling ground rent clauses since 2017, and introduced an assistance program last year for leaseholders whose ground rents doubled more often than every 20 years. “We will continue to engage constructively with the CMA to resolve this complex issue,” the company said.

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